IRAN: THE MEETING POINT OF CORRUPTION AND HUMAN RIGHTS VIOLATIONS SUBMISSION TO THE WORKING GROUP ON BUSINESS & HUMAN RIGHTS: CONNECTING THE BUSINESS AND HUMAN RIGHTS AND ANTI-CORRUPTION AGENDAS February 2020 1 ▼ Justice for Iran (JFI) is a not-for-profit, non-governmental organ- isation established in 2010 in London, UK. JFI’s mission is to address and eradicate the practice of impunity that empowers officials of the Islamic Republic of Iran to perpetrate widespread human rights viola- tions inside and outside of Iran, and to hold them accountable for their actions. To achieve its mission, JFI researches, documents, reports, and litigates individual cases. It further raises public awareness and participates in human rights advocacy through the UN and the EU. JFI has a specialised business and human rights programme that aims to increase corporate accountability and respect for human rights among businesses and financial actors engaging in export of goods or services, investments and development projects in and from Iran. Website: justiceforiran.org Twitter: @Justice4Iran /@Justice4IranEn Address: 25-27 Bickerton Road, N19 5JT London, United Kingdom Tel: +44 (0)2072819940 VIOLATIONS AND HUMAN RIGHTS IRAN: THE MEETING POINT OF CORRUPTION Email: [email protected] 2 ▼ CONTENTS ABOUT THIS SUBMISSION 3 1. PROBLEMATIC OWNERSHIPS AND CORRUPT PRACTICES 4 2. BUSINESSES CONTROLLED BY THE SUPREME LEADER OF IRAN 5 3. UNDUE INFLUENCE AND CORRUPTION IN PUBLIC ENTITIES 6 4. CORRUPT BANKING SYSTEM 7 OF SYRIA DESTRUCTION AND RECONSTRUCTION 5. FRONT (PRIVATE!) COMPANIES AND LONG CHAINS 7 6. LACK OF INDEPENDENT WATCHDOGS AND TRIBUNALS 8 7. LACK OF TRANSPARENCY AND PROTECTION FOR JOURNALISTS 9 AND WHISTLEBLOWERS IRAN: THE MEETING POINT OF CORRUPTION AND HUMAN RIGHTS VIOLATIONS AND HUMAN RIGHTS IRAN: THE MEETING POINT OF CORRUPTION a. RELEASING UNUSABLE INFORMATION AND DOCUMENT DUMP b. RELEASING MISLEADING INFORMATION c. WITHHOLDING INFORMATION AND IGNORING THE LAW d. THREATS AND INTIMIDATION AGAINST JOURNALISTS AND WHISTLEBLOWERS RECOMMENDATIONS: 12 3 ▼ ABOUT THIS SUBMISSION This submission is an effort by Justice for Iran to shed light on some of the corrupt practices of state actors and businesses, as well as systematic flaws in the legal and financial systems in Iran. It must be stressed at the outset that the issues discussed here are far from exhaustive and the present submission cannot possibly do justice to the immense extent and scope of corruption in Iran. At a superficial level, the submission can serve as a brief overview of corruption in Iran that can be useful for foreign businesses and financial actors who may engage in export of goods or services, investments and development projects in Iran. The deeper underlying aim of the submission, however, is to contribute to a better un- DESTRUCTION AND RECONSTRUCTION OF SYRIA DESTRUCTION AND RECONSTRUCTION derstanding of how corruption may cause, contribute or be linked to human rights abuses. It particularly seeks to underscore that for human rights to be effectively protected, a wide range of enabling factors, including practices, legal framework and complicit actors, who because of corruption, allow or facilitate human rights abuses should be taken into account. We hope this submission will be helpful to the Work- ing Group’s work on connecting the business and human rights, and anti-corruption agendas. IRAN: THE MEETING POINT OF CORRUPTION AND HUMAN RIGHTS VIOLATIONS AND HUMAN RIGHTS IRAN: THE MEETING POINT OF CORRUPTION This submission has seven sections seeking to address some of the problematic insti- tutions and practices that embody systematic corruption in Iran and facilitate human rights violations. The first section focuses on issues of ownership and control of com- panies as well as the identity of shareholders and directors and their ties with military or security forces. The second section gives an overview of the entities controlled by the Supreme Leader of the Islamic Republic of Iran and the undue advantages and privileges afforded to such entities. The third section examines internal corruption and corrupt practices that are rife in many public entities. Section four touches upon Iran’s banking system which is one of the main contributors to the country’s financial corruption. The next section discusses a common and well-known practice of using front companies and chains of ownership in order to conceal the role of governmen- tal and military entities in Iran’s market. The final two sections highlight the lack of an independent watchdog, as well as transparency and effective protections for jour- nalists and whistleblowers. Finally, we attempt to provide a number of recommen- dations that begin to emerge from this research, which seem to be applicable more broadly to connecting corruption and business and human rights. 4 ▼ 1. PROBLEMATIC OWNERSHIPS AND CORRUPT PRACTICES The first area that is noteworthy here concerns various but connected issues of own- ership and control of companies. These include: the identity of shareholders and di- rectors; connections with military or security forces, e.g. the Islamic Revolutionary Guard Corps (IRGC), or other entities linked to gross human rights violations; cor- rupt bidding practices and takeovers; and using political and military influence to win profitable contracts. Below is only one example of the scope and problematic nature of such issues: In 2009, two IRGC-owned companies, together with the Execution of Imam Khomeini’s Order (EIKO, also known as Setad), a foundation controlled by the Su- preme Leader of Iran1, formed a consortium called Tose’e Etemad Mobin, itself dom- inantly owned and controlled by the IRGC.2 In a wave of “privatizations” of public companies pursued in 2009 by the government of the time, the Consortium took part in a bid to buy the majority shareholding of Telecommunication Company of Iran (TCI) and won the bid. In addition to the problematic credentials of the Consortium, the bidding became an immediate cause of controversy, as a number of other compa- nies claimed the auction was rigged in favor of the Consortium.3 Among other issues, IRAN: THE MEETING POINT OF CORRUPTION AND HUMAN RIGHTS VIOLATIONS AND HUMAN RIGHTS IRAN: THE MEETING POINT OF CORRUPTION one of the bidders Pishgaman Kavir Yazd (PKY), was removed from competition and replaced by another company which belonged to the Basij paramilitary organisation which is controlled by IRGC. At first, the head of Iran’s Privatisation Organisation announced that PKY withdrew from the competition. However, after PKY publicly re- jected the claim, the reason for its removal was revealed as lack of security clearance. 4Ironically, the head of the Competition Council, who supposedly should have been concerned with such blatant violations of competition rules, stated that “practically 1 A 2013 Reuters investigative report has documented how Setad has built a multibillion dollar empire on the systematic seizure of thousands of properties belonging to members of religious minorities like Baha'i, as well as political dissidents and other Iranians living abroad. See: Reuters, Khamenei controls massive financial empire built on property seizures, Nov 11, 2013, available at: <http://www.reuters.com/investigates/iran/#article/part1> 2 ICTNA, “The Characteristics of Etemad Mobin Consortium as the Buyer of Communications Stocks Ex- plained”, September 12, 2009, available (in Farsi) at: <http://www.ictna.ir/id/022937/>. 3 ICTNA, “Behind the Curtain of Security-related Disqualification of Pishgamana-Kavir-Yazd in the TCI Auction: In Conversation with PKY’s CEO” Oct 26, 2009, available (in Farsi) at: <http://www.ictna.ir/report/archives/023756.html> 4 https://bit.ly/2vklEsa 5 there was no competition in this deal and therefore there was no ground for our in- tervention”. 5 ▼ In 2016, a report published by an Iran-based specialist ICT journal revealed the breakdown of the shareholders of TCI following the 2009 purchase.6 The report crit- icizes the so-called ‘privatization’ of TCI and stresses that there is no doubt that the Consortium that purchased the majority share of TCI is owned by IRGC and Setad. The report also gives a detailed account of the dominance of a complex network of companies across the ICT sector in Iran, the majority of which are controlled by the IRGC.7 Having purchased 50% plus one of the shares, and therefore holding the ma- jority share of TCI, the IRGC-controlled Consortium now controls TCI, and effective- ly a major part of the telecom sector in Iran with monopoly over certain areas, for example landline telecommunications. This is extremely concerning given the track record of gross violations of human rights by the IRGC. 2. BUSINESSES CONTROLLED BY THE SUPREME LEADER OF IRAN IRAN: THE MEETING POINT OF CORRUPTION AND HUMAN RIGHTS VIOLATIONS AND HUMAN RIGHTS IRAN: THE MEETING POINT OF CORRUPTION The second significant issue herec concerns the extraordinary advantages and priv- ileges afforded to entities controlled by the Supreme Leader of the Islamic Republic of Iran, such as their exemptions from audit and supervision, lack of transparen- cy and tax exemptions. Such special arrangements give huge advantages to the Su- preme-Leader-controlled businesses and companies. Although the above exemptions are well-established, there have been some occasions where further clarification was needed. For example, in July 1993, the minister of Economic Affairs and Finance is- sued an administrative order stressing the exemption of Setad from paying taxes. In his order, the minister Nourbakhsh refers to an order by the Supreme Leader of IRI in which he had ordered the grant of such an exemption. 8 In addition to tax exemptions, such entities are excluded from the scrutiny of public 5 https://bit.ly/3bv6yAP 6 Meysam Qasemi, “Humble Owners of ICT”, Peyvast Monthly, Sep 2016, available (in Farsi) at: <http:// </ict-مالــکان فروتــن/peivast.com/month-report 7 Ibid. 8 http://www.intamedia.ir/Pages/Action/LawsDocShow/2/1/1/4/1052 6 bodies.